The Solicitors Regulation Authority (SRA) have simplified the accounting rules surrounding how solicitors handle client monies.
20 November 2019
Whilst the new regulations retain their focus on the protection of client money, after 25 November 2019, solicitors are given greater flexibility in how they comply with a simpler set of standards.
Key changes in the new rules
Instead of having to comply with 52 rules which covered some 80 pages, solicitors now have 13 shorter and more outcome-focused rules. These 13 rules are grouped under 7 principles rather than 10.
Solicitors are now able to use their professional judgement in how the required standards are met – meeting simpler accounting rules for safeguarding client money rather than many technical and prescriptive ones.
From November all regulated firms who run a website, will need to display the SRA Digital badge.
4. The client account
Changes in how client money is defined in the new rules may mean some firms are no longer required to hold client bank accounts. This also has implications for money received in advance for fees and disbursements (where they are the only client monies held and clients are notified in advance), as well as money received from the Legal Aid Agency.
Under the old rules, period controls were specifically described. For example, client money received had to be paid into the client money account within the second working day. Under the new rules period controls have been replaced with the word “promptly”. It is up to the firm to decide what “promptly” means . Firms that operate client’s own accounts will need to reconcile them every 5 weeks.
6. Reimbursing costs procedure
Firms can still transfer money from the client account to reimburse for incurred or paid disbursements, but they now need to provide a bill for those incurred to the client before the transfer is completed. All disbursements (professional or otherwise) are treated the same way under the new rules.
7. Agreed fees
These are no longer viewed as separate to costs, and are now viewed as client money until a bill has been raised.
8. COFA requirements
A Compliance Officer for Finance and Administration (COFA) in the firm now needs to review and sign off the client account reconciliations. Any differences on the reconciliation should be investigated and resolved.
9. Third Party Managed Accounts (TPMAs)
These are permitted to receive/make payments from or on behalf of the client in respect of regulated services. Firms must still obtain regular statements from the TPMA provider and ensure these accurately reflect all transactions on the account.
How to prepare
Whilst the new rules come into force on 25 November 2019, firms could opt to continue using the old rules’ period controls for handling client money, as long as all areas of the new rules have been considered and changes made where necessary. Obviously the simplification and flexibility in the new rules is appealing to the business operations of solicitor firms.
A checklist for reviewing and adopting the new SRA rules.
- Ensure key compliance-related staff in your firm are up to speed with the new SRA Accounting rules and have received necessary training.
- Evaluate your firm’s current systems and accounting software to ensure they comply with the regulations – particularly in how you handle and account for client monies, and payments for disbursements.
- Review and, where necessary, update your manuals and procedures to reflect the new timescales criteria in the rules. Having clear documented systems and controls will be important for compliance.
Can we help?
As accountants specialising in the legal sector, we have been helping solicitor firms prepare and take advantage of the simplification in the new SRA Accounting rules.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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